- You do not pay tax on the cash flow boost credits as they are non-assessable non-exempt income, but you may need to report the amounts in your tax return for other purposes. Refer to the relevant tax return instructions for your business structure for guidance.
- You are still entitled to a deduction for the payments made to your workers provided you have complied with the pay as you go (PAYG) withholding and reporting obligations for that payment.
- If you pass the cash flow boost on to others, such as dividends or a trust distribution, there may be tax consequences for the recipient.
- If you claim the research and development (R&D) tax offset, your claim is not affected by any cash flow boost you receive.
TAX CONSEQUENCES
You do not need to pay tax on the amount of the cash flow boost and the cash flow boost is not subject to GST because there is no supply for the payment. The amounts do not need to be paid back when your cash flow improves. However, if you have been paid more cash flow boosts than you are entitled to you will need to repay the excess.
PASSING ON THE CASH FLOW BOOST TO OTHERS
If you distribute an amount representing the cash flow boost through your company or trust, the tax consequences of the recipients will depend on your type of entity making the distribution.
For example, if your unit trust distributes all or part of the cash flow boost amount to a unit holder, there will be no tax consequences for the unit holder in receiving that amount. If your company distributes all or part of the cash flow boost amount to a shareholder, the amount will be treated as a dividend, and it will need to be included in the recipient's assessable income for that income year. We would expect that such distributions will be rare, however, since the cash flow boost is intended to be used to support the business needs of the company or trust.
SCHEMES
You will not be eligible for cash flow boosts if you (or a representative) have entered into or carried out a scheme for the sole or dominant purpose of:
- becoming entitled to cash flow boosts when you would otherwise not be entitled; and
- increasing the amount of the cash flow boosts.
Schemes could include:
- artificially restructuring or arranging your business to meet the eligibility criteria; and
- increasing wages paid in a particular month to maximise the cash flow boost amount.
Any sudden changes to the characterisation of payments you make may prompt the Australian Taxation Office (ATO) to investigate whether the payments are in fact wages. This could trigger an ongoing liability to pay:
- FBT;
- PAYG withholding;
- super guarantee contributions; and
- other employee-related costs.
If the payments are wages, the ATO may consider the characterisation of past payments, including whether:
- they should have been subject to PAYG withholding;
- super guarantee contributions should have been made; and
- you have FBT obligations that have not yet been met.
The arrangements that concern the ATO include:
- artificially restructuring businesses to gain access to the cash flow boost;
- artificially changing the character of payments to salary and wage to maximise the cash flow boost;
- inflating reported withholding amounts to maximise the cash flow boost;
- resurrecting dormant entities or phoenixing; and
- making false statements or fraudulent attempts to create an entitlement.
If the ATO find you have entered into or carried out a scheme with the aim of becoming entitled to the cash flow boost, or increasing the amounts of the cash flow boost, you will be required to repay the entire amount back to the Commissioner.
Significant penalties and interest charges can apply to overpayments of the cash flow boost arising from schemes. Sanctions under criminal law may also apply to fraudulent claims.